UPDATE May 22: This morning the company announced the postponement of their IPO. As we noted during marketing this company doesn’t have a tight enough positioning and roadshow presentation to attract investors. Some of our thoughts on how they might reshape their story are below but we’re not sure management will hear the message or just suppose that the reason their deal couldn’t get done is just general market weakness.
Despite the bold title this cancer care provider is only getting limited interest in their IPO. Part of the reason is their balance sheet which includes debt that they are looking to restructure.
The 13M share deal is being brought by Morgan Stanley, JP Morgan and Wells Fargo with a hoped-for price range of $14 to $16. (In parallel with a $75M convertible.) The deal is scheduled to price tonight (Tuesday, May 20th) but that will depend on demand and the willingness of the company to revise terms downward.
21st Century Oncology (ICC) has 185 cancer treatment centers spread around with nearly 800 physicians involved. It’s also a bit of a “roll-up” strategy which leads many investors to discount the growth rate and apply a lower valuation multiple.
The investment story is fairly simple – cancer is a large and growing problem that requires treatment. We are the biggest and best option and will continue to grow by acquisition.
Revenues are now in the $1B/year range with positive adjusted EBITDA. There isn’t much sizzle to this story and based on the lack of any long-term financial objectives it may not be fully baked either. Add in some uncertainty around health care reform with a focus on cost-containment and reimbursement rates and it’s easy to see why investors are underwhelmed.
If the deal fails to get done we’d send this company back to the drawing board and focus the growth and the story more on technology-driven improvements in transparency, cost efficiency and higher quality of care. Right now the positioning is “we’re a little better than a hospital-based center on average and we can buy up centers in a fragmented market.”
We’ve archived the 21 Century Oncology roadshow slides for IPO Candy internal use.
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